Pay Check

What Mittelstand Managers Make

Industry is where the money is. Source: DPA
Industry is where the money is.
  • Why it matters

    Why it matters

    Many of Germany’s mid- and small-sized firms known as the Mittelstand are world-class specialists in their fields, but most are not publicly traded. The GmbH is a form of limited liability company popular in the German-speaking world.

  • Facts

    Facts

    • The salary of managing directors of German GmbH firms rose on average by 6.4 percent last year.
    • The bosses of mid-sized companies prefer mid-sized company cars.
    • Women directors earn considerably less than their male counterparts.
  • Audio

    Audio

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If you wanted to describe the average managing director of a German limited liability company (GmbH), the typical boss is male, 51 years old, and he drives a medium-sized company car. He is responsible for 150 employees, works 50 to 60 hours per week and earns an annual income of €145,412 ($185,775).

This is, of course, just a hypothetical case based on a survey conducted for the 20th time this year by Handelsblatt and the consultancy BBE Media in cooperation with the German Association of Tax Advisers.

About 3,150 GmbH managing directors took part, providing information on salaries, bonuses, retirement plans and extras like company cars. Unlike publicly listed companies, GmbHs are not required to make their salaries public. Therefore, the annual Handelsblatt study is often used as a guideline for many German fiscal authorities.

The study shows that, on average, the total compensation package for GmbH executives has risen by 6.4 percent over last year. In comparison with the modest salary increases of many employees, this is a considerable jump. However, it is not that large if you compare it with the double-digit increases for manager salaries in past years.

 

Salary Sectors-02

 

“There will generally not be rapid growth in the salaries of GmbH chief executives,” said Peter Rath, an expert on compensation at BBE Media.

He said GmbH company shareholders normally keep a close eye on the compensation of managing directors. And for those GmbH executives who also own stakes in the firm, the German taxman plays a corrective role. That’s because if a boss’ salary is too high, there is the danger it would flag a hidden distribution of profits to the tax authorities. By booking a managing director’s exorbitant salary as an operating cost, a company could lower the amount of corporate tax it pays.

The top earner of this year’s survey works in wholesale in the textiles, leather and sportswear sector. He reported total compensation of €2.6 million.

The top earners this year among the GmbH managers were again working in the industrial field. The total median compensation for directors in this sector of the German economy was €162,530. A median value means half of them earned more, and half earned less. While the average compensation for industry heads dropped slightly from last year, in retail there was a noticeable surge: the median annual salary and bonus there was €130,453, whereas last year it was only €98,340.

“Managing directors are not civil servants, they don’t insist on an inflationary adjustment,” said tax adviser Rolf Leuner from the consultancy Rödl & Partner. In his experience, a GmbH boss will only approve an increase in his salary if there had been a considerable leap in sales or profits. “In the end, managers think entrepreneurially,” he said.

Salaries are related, in particular, to a company’s size: Firms with sales of up to €5 million have executives earning total median compensation packages of €143,846, while companies with sales of more than €25 million pay their bosses a median of €331,072.

The top earner of this year’s survey works in wholesale in the textiles, leather and sportswear sector. He reported total compensation of €2.6 million. He is in the league of CEOs working for Germany’s 30 firms listed on DAX stock market index, who, according to research by the German Shareholders’ Association, earned an average of €3.3 million last year.

 

The modest salaries of GmbH executives is matched by the type of company car they drive: Most opt for a higher quality medium-sized model, costing on average €68,400. The favorite models in the company garages are the Mercedes E-Class, 5-Series BMW and Audi A6. There is only one outlier: one respondent said the purchase price of his company car was a hefty €251,000.

The survey also found a noticeable difference when it came to compensation for men and women.

“Male managing directors earn significantly more,” said BBE’s Mr. Rath.

The female top earner’s total compensation was not in the millions, but rather “only” €431,329. The company cars of the female chief executives also cost about €10,000 less than those of their male counterparts. Mr. Rath says one reason for this might be that women often lead smaller companies, which would reduce their compensation.

 

The study on GmbH manager compensation can be found online at: kaufhaus.handelsblatt.com

The author of this story, Catrin Bialek, covers companies and markets for Handelsblatt. To contact the author: bialek@handelsblatt.com

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